3 Questions to Ask Before Investing in Your Company’s 401k or 403b

I’ll be honest. I’ve been a little afraid to start this blog and even more afraid to write about real world problems and how we can fix our own little financial worlds in the midst of all this chaos. I’m going to do my best to share my thoughts and let the chips fall where they may.

One topic I’ve researched a lot over the years, watched documentaries on, but personally do not fund are 401k retirement plans. We do have a pension system (while in disarray) that we are paying into and we fund Roth IRAs. We have the option to fund 403b accounts, but at this time we’re investing that money in paying off our mortgage.

If you want a true picture of the 401k (or 403b), read Why Your 401k Is A Scam! by James Altucher. So far, that’s probably the best piece of writing I’ve found that explains it straight forward.

I know not everyone will agree with me, but that’s okay. That’s why personal finance is personal. As long as you’re comfortable with what you’re doing, then don’t listen to anyone else.

One of the biggest things I’ve said to others who talk to me about personal finance is to ask questions. Lots of questions. If someone is coming to meet you in your work lunchroom to manage your retirement, you’re paying them. This isn’t a free meeting. They are getting paid in fees and bonuses for all the money they are bringing into their company. Don’t be fooled.

3 Questions You Should Ask First

Are you a fiduciary?

This is someone who has to act in your best interest. Ask this question and I can almost guarantee that they will stumble in their response and in no way say “Yes, yes I am” in a confident manner. At this point, run the other way.

What are your front load, back end, 12b-1, management, processing, exchange, etc… fees?

You want to know what all of this investing is going to cost you. There is a fee to put the money in, a yearly fee to manage, many more fees, and guess what – another fee to take your money out. Here’s a quick list of mutual fund fees.

What’s the expense ratio?

Expense ratios are the annual percentage that is taken from the fund to cover costs. This is paid from your account and you want it to be as close to 0% as possible.

If you don’t know what any of these terms are, go to your local library and borrow a book on investing, personal finance, or anything in the 332 section of Non-Fiction.

Your money might be going in tax free, but it’ll come out taxed and possibly at a higher rate. In addition, this money could be written off in another manner for tax purposes especially at a younger age when you have interest write-offs and dependents.

If you have an option for a Roth 401k, that’s a different story; but ask these same questions.

We currently invest our Roth IRAs in index funds with Vanguard. We don’t have time to play the stock market, nor will I ever claim to know the best stocks to pick. It’s worth being said too it’s currently being proven that index funds out do any actively managed hedge fund by a wide margin, thanks to Warren Buffett. And so far, our index funds have had low expense ratios and despite the stock market dips continue to perform well.